Just in Time Stimulus: Fed Proposes Looser Rules for Large U.S. Banks

The Fed's proposal marks one of the most significant rollbacks of bank regulations since Trump took office.

The Wall Street Journal reports Fed Proposes Looser Rules for Large U.S. Banks

The Federal Reserve announced one of the most significant rollbacks of bank rules since President Trump took office with a proposal for looser capital and liquidity requirements for large U.S. lenders.

The changes would affect large U.S. lenders including U.S. Bancorp , Capital One Financial Corp. , and more than a dozen others. The largest U.S. banks, including JPMorgan Chase & Co., wouldn’t see any significant rule changes, and some in the industry thought the proposal didn’t go far enough.

The draft proposal, approved by a 3-1 vote at a Wednesday meeting of the Fed’s governing board, would divide big banks into four categories based on their size and other risk factors. Regional lenders would be either entirely released from certain capital and liquidity requirements, or see those requirements reduced. They could also, in some cases, be subject to less frequent stress tests.

The proposals received a mixed reaction from banks. While some trade groups praised it, Greg Baer—president of the Bank Policy Institute, which represents large banks—said the proposal “does not do enough to tailor regulations.” He said, for instance, the plan doesn’t include changes to the Fed’s primary stress tests for big banks or to rules affecting foreign-owned banks with U.S. footprints. Fed officials said they were planning future proposal in those areas.

The plan divided the Fed, with Trump-appointed regulators and the Fed’s lone Obama-appointed official taking opposite sides. Fed Chairman Jerome Powell said the proposal would cut the regulatory burden “while maintaining the most stringent requirements for firms that pose the greatest risks.”

Fed governor Lael Brainard dissented. The Obama appointee said the policy changes “weaken the buffers that are core to the resilience of our system” and raise “the risk that American taxpayers again will be on the hook.”

Less Regulation Needed

My "Just in Time Stimulus" headline was meant as sarcasm, in case anyone missed it.

Yet, I am all in favor of less regulation. This is what we need.

  1. End the Fed
  2. End fractional reserve lending
  3. End the bailouts
  4. End deposit insurance
  5. Let the free market select what is money

Failure of Regulation

All five points above are failures of regulation, not failures to regulate.

If we are to enact my plan, by all means let banks lend however the hell they want. The free market will take care of what's needed.

If banks make poor lending choices, they will fail. And that's a good thing.

As it sits, looser lending standards coupled with the current credit bubble, housing bubble, equity bubbles, and a junk bond bubble is not the best thing to do right now.

Lowering capital standards is downright idiotic in light of the need for point number two above.

Mike "Mish" Shedlock

Comments
No. 1-7
Sechel
Sechel

what will happen is we'll reduce capital requirements, maintain deposit insurance and fractional lending and the inevitable next bail out. we'll get the worst of all possibilities.

Less regulation and reduced capital requirements while the gov't is explicitly and implicitly guaranteeing the banks and subsidizing their credit risk is a recipe for disaster.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

If we got rid of deposit insurance, what protection would savers have?

None - But with 100% reserve requirements there would not need to be any, except to protect against theft and fraud. Banks would not be able to lend checking deposits. Savers take a risk on interest-bearing deposits, as they should.

kilroy
kilroy

Mish, what do you mean by letting the free market select what money is? If we got rid of deposit insurance, what protection would savers have?

JL1
JL1

Attempt to keep the debt bubble growing to get FAKE economic growth through excessive debt...

shamrock
shamrock

What do you propose the banks do with their deposits instead of lending it out? No matter what it is, there is no way they can make good on a guarantee to have everyone's deposits available for withdrawal from any location in the world on demand.

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